A Simplified Explanation for Why Oil Prices Are So Low

There are many theories and conspiracies for why oil prices continue to to drop. After reading several articles on this, I’ve come up with the following summary.

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First, it’s not a conspiracy. Big oil companies are not doing a Mr. Burns pose and planning a world takeover.

The main reason this isn’t true is that there is no Mr. Burns. The biggest American oil companies, the biggest oil companies in Saudi Arabia, and even OPEC are not big enough to be the bully.

And that’s actually the problem.

People keep thinking that one or more of these giant companies is single-handedly saturating the supply so that prices will drop. The theory is that this will then push out the smaller companies that are viable only when prices are quite high.

And there’s a good chance that this was true to some degree. But that’s not what’s happening now.

What’s happening now is that because there are so many relatively small suppliers in the market, the issue has now become a fight for marketshare.

In short, once people started flooding the market with supply, it became a race to the bottom. Nobody can take their foot off of the gas (sorry) because they’re worried that people will start using their competitor’s product instead of theirs.

So everyone’s pushing out as much product as possible, to try to make money back in volume.

This, more than anything else, is what is causing the falling prices.

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Notes

I am not an industry insider or an expert on this. This is just my summary of what I believe to be the smartest analysis on the topic by several of those experts.